The former president of the nation's largest diesel fuel retailer contends his bosses at Pilot Flying J threw money at trucking companies — owed or not — in the wake of a growing scandal over a fraud scheme, which a jury has since concluded he headed and promoted.

Mark Hazelwood, former president of the truck stop giant and now a convicted felon, contends via his new defense team that he can't trust the math on his own fraud — a figure that will form the basis of a calculation on how long he'll spend in prison.

He says in new filings in U.S. District Court his former bosses — Pilot Flying J’s board of directors — threw money at any trucking customer that claimed fraud when news of an April 2013 raid at the company's Knoxville headquarters broke.

That means, he contends, the roughly $23 million in fraud an audit attributed to Hazelwood is inflated. He is seeking a three-month delay in his upcoming sentencing hearing to challenge the numbers.

'Making customers happy again'

The 2015 audit findings “overstated the loss as a whole, and for each individual defendant, because the PFJ internal audit was not, in fact, a true audit but was, rather, partially an exercise in making customers happy again, including by giving them any discount to which they claimed entitlement,” attorney Brad Henry wrote on behalf of Hazelwood.

Hazelwood wants to delay a hearing currently set for Aug. 22, at which he will learn his fate in a five-year fraud plot involving 19 of his former subordinates at Pilot Flying J. He was convicted earlier this year after a four-month trial and is under house arrest.

Henry is trying to win a delay by arguing Hazelwood’s new New York defense team needs three months to challenge audits federal prosecutors want to use to show how much each co-conspirator, including Hazelwood, cheated Pilot Flying J’s trucking customers.

Henry has filed a series of exhibits and affidavits. An analysis of those documents shows the following:

Checking the books

Pilot Flying J hired Nashville law firm Neal & Harwell to handle the legal side of the fraud scandal. The truck stop giant’s board authorized an internal audit after the raid. When the first wave of former staffers struck plea deals in the fraud plot, the board struck a deal of its own.

As part of a criminal enforcement agreement, Pilot Flying J admitted $56.5 million in fraud from 2008 to the day of the 2013 raid. The firm agreed its lawyers would hire an independent auditor to go over the company's own audit, which spanned from 2005 to the day of the raid. The discrepancy in the dates is not explained in the filings by Henry.

Court records show the firm attributed a total of roughly $134 million in "customer losses" to those 42 staffers and executives in that eight-year period. That figure overstates the actual amount trucking companies were fleeced in the fraud plot because the same act of fraud was often counted more than once.

For instance, if a sales representative, a sales executive and a supervisor each were involved in a single act of fraud, the amount of that fraud was counted against each one. So, a $1 fraud involving three people could be counted as $3 in Pilot Flying J's audit, according to KraftCPAs documents.

KraftCPAs said in its 2015 report that $134 million figure also included both fraudulent and accidental “customer losses” attributed to the actions of Pilot Flying J’s direct sales division staff. The firm said it largely took the word of Pilot Flying J on which “losses” were accidental in cases where there were no documents to prove fraudulent “intent.”

In the run-up to sentencing hearings in the case, federal prosecutors Trey Hamilton and David Lewen asked, via Neal & Harwell, KraftCPAs to “refine and narrow” its conclusions “to only include defendants who were either convicted or pled guilty,” Henry wrote.

'Benefit-to-the-customer' bias

The prosecutors also wanted KraftCPAs to tweak the numbers to account for what the auditors described as a “benefit-to-the-customer” bias in Pilot Flying J’s audit. Pilot Flying J insisted in its own audit that trucking companies were awarded money whether they could prove their fraud claim or not.

KraftCPAs now has issued an interim report, which Henry says Hazelwood’s defense team has only recently received. It laid more than $23 million in fraud at Hazelwood’s feet and listed 215 victims in the five-year plot. Henry did not reveal the total fraud loss figure cited in the 2018 supplemental report.

The audits cited in Henry’s filings are not included as exhibits in their entirety, so the full scope of what KraftCPAs found and concluded about the financial books on Pilot Flying J’s diesel fuel rebate program isn’t yet known.

Pilot Flying J’s board paid $92 million in criminal penalties and shelled out $85 million in lawsuit settlements in connection with the fraud scheme. The firm paid the defense bills for its accused staffers until they confessed, and is still paying Hazelwood’s defense tab. Pilot Flying J also agreed to pay Hazelwood — who was earning $26.9 million in the last year of the fraud scheme — $40 million to settle all the various issues in the employment contract dispute.

Prison term grows with cash flow

Hazelwood’s penalty range grows higher with every million in fraud loss prosecutors can prove. The number of victims also boosts his penalty range. Hamilton said at a hearing earlier this year he believes Hazelwood’s sentencing guidelines could tally as high as 20 years.

Knoxville attorney Brad Henry(Photo: submitted)

Because Hazelwood’s fate rests on the amount of fraud attributed to him, his defense team says it needs more time to prepare.

“Mr. Hazelwood is being afforded less time to understand and test the validity of loss calculations that are much more complex,” Henry wrote. “Years of work went into producing the supplemental Kraft report, and asking the defendant to meaningfully challenge it in two and a half weeks is to give him no meaningful opportunity to contest it at all.”

The prosecutors have not yet responded.

Hazelwood fired his trial attorneys earlier this year and is now blaming lead attorney Rusty Hardin — a renowned white-collar attorney — for his conviction. He’s trying to convince Senior Judge U.S. District Judge Curtis L. Collier to give him a new trial before the judge decides his fate. Collier has repeatedly said he would not delay Hazelwood’s sentencing hearing.